HMRC clamps down on tax-dodging private tutors

The HMRC is targeting private tutors in a clampdown on tax avoidance Photograph: Christopher Thomond

Private tutors are the latest group of professionals to be targeted in a crackdown on tax-dodging as HM Revenue & Customs said it was beginning to win the battle against avoidance, evasion and fraud.

HMRC said the so-called "tax gap" between what should have been paid by individuals and businesses and what was collected, had fallen by £4bn to £35bn.

Much of the focus recently has been on clamping down on tax avoidance among the super-rich, with an announcement last weekend that a team of "affluence" inspectors will concentrate on those whose personal wealth is more than £2.5m, but HMRC said it would turn its attention next month to relatively low-level tax-dodging by private tutors, which could include music and language teachers, horse riding instructors and fitness coaches. A number of schoolteachers work as private tutors to supplement their incomes.

The move follows earlier clampdowns on plumbers, doctors and dentists designed to "encourage" them to hand over any unpaid income tax.

The HMRC said those who came clean would face a lower penalty than if it found out itself. A spokesman said the "vast majority" of those who could be classed as private tutors were "fully law-abiding citizens" who pay what they owed. But, he added, there was a "significant enough minority" for it to be concerned.

It will employ cutting-edge tools such as "web robot" software to search the internet and find information about specified people and companies, and their financial affairs. It will then use this information "to pursue people who choose not to use the opportunities we provide for them to put their affairs in order on the best possible terms".

The campaign targeting doctors and dentists raised about £10m; it is understood one doctor who owed the taxman £1m paid the whole sum by handing over a cheque.

In the most recent campaign, involving plumbers, the money is "still coming in".

Five plumbers have been arrested, about 600 are under civil investigation for failing to pay the right amount of tax, and payments totalling more than £94,000 have been made, with a further £234,000 offered. Meanwhile, a partial amnesty for people with offshore accounts has raised about £500m.

HMRC yesterday announced that the UK tax gap for 2009-10 had fallen to £35bn (revised down from £42bn) in 2008-09. In simple terms, this gap is the difference between how much tax should have been collected and how much actually did come in. This includes direct and indirect taxes such as income tax, VAT, corporation tax and stamp duty. Much of the gap is money lost as a result of tax avoidance, evasion and fraudulent activity.

The main reason for the decrease was the reduction in the "VAT gap" following the cut in the tax from 17.5% to 15% from December 2008 to the end of 2009.

A total of £14.5bn of direct taxes – income tax, national insurance and capital gains tax – was not collected. Of this, £1.3bn of the missing cash was blamed on "ghosts" – the term used to describe people who have earnings from employment or self-employment and fail to declare any of this income.

A further £1.8bn was attributed to "moonlighters" – those who pay tax on their main job through PAYE but have a second job or extra income from self-employment

City law firm RPC said the figures were "evidence that HMRC's aggressive clampdown on tax evasion is having a real impact". Adam Craggs, tax partner at the firm, said: "The taxman was given £900m in funding last year to help improve tax compliance. If this money is spent on high-profile prosecutions, it may be that the tax gap will fall further over the next few years."

He said a "quick, cheap way" to reduce the tax gap further would be to cut the 50% tax rate: "The higher rate is encouraging a lot of high earners to structure their affairs so as to minimise their tax liability."

David Gauke, the exchequer secretary to the Treasury, said: "Although these numbers show continued progress by HMRC in reducing the tax gap, there is no room for complacency. Just in the last few weeks, we have challenged offshore tax evaders, closed tax avoidance loopholes and created a new HMRC unit to ensure that the wealthier members of society pay their way."